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PCLN, EXPE, TRIP Disappointed? Buy These Hotel Stocks Instead

Sejuti Banerjea

Online travel booking companies Priceline PCLN, Expedia EXPE and TripAdvisor TRIP reported mixed results, but investors punished the shares regardless.

In Priceline’s case, the company’s reported revenue and earnings of $4.43 billion and $35.22 a share, represent double digit growth from the year ago quarter and are ahead of the Zacks Consensus Estimate. While Priceline usually guides conservatively to come back and beat the lowered expectations, this time investors weren’t willing to give it the benefit of the doubt.  

Expedia on the other hand, reported revenue and earnings that missed the Zacks Consensus Estimate but revenues still managed to grow from last year. What’s worse, it lowered its EBITDA outlook for the year from 10-15% to a mid- to high-single-digit percentage rate.

TripAdvisor missed the Zacks Consensus Estimate on the top line while beating on the bottom line. Earnings were below the year-ago level.

When all the major players in any market produce unsatisfactory earnings reports, there’s very likely to be a common factor hitting them. In this case, it’s the hotels themselves.

Hotels generally share their inventory with online travel companies to facilitate the distribution of room nights for a fee. But as they grew larger and started enjoying the benefits of scale, these OTAs charged higher and higher fees, such that smaller hotels couldn’t afford it, while larger hotels had to part with a good amount of their profits.

Or at least that is what hotels are saying through the American Hotel & Lodging Association. The association is looking to lobby people in the new administration and those serving in the ITC, objecting to what they call the companies’ monopolistic business.

Another gripe with hotels is the online travel agents’ refusal to pay occupancy tax, thus forcing hotels to pay.

Google is also eating their lunch. The leading search engine is gaining on all fronts, first through advertising fees that companies like Expedia and Priceline pay and second, through services like Book on Google that lead customers directly to the hotel’s app or web portal.

The hotel, then, offers loyalty points and other incentives to encourage customers to come directly to them instead of through an online travel agent. A recent report from Skift estimates that Google’s travel business is now worth a $100 billion, or more than Priceline.

OTAs can’t afford to sit and wait until all the business is lost. So they are investing heavily in marketing. This, again, is hurting their profits.

If this is a depressing picture, it luckily isn’t the only alternative for investors looking for travel exposure. And indeed, since hotels are pitted against OTAs in this battle, why not invest in hotels themselves? So here is a list of hotels that are worth investing in right now.

Marriott International MAR

Marriott International is the world's largest hotel company. Marriott operates and franchises hotels and licenses vacation ownership resorts. The company's many leading brands include: Bulgari, The Ritz-Carlton® and The Ritz-Carlton Reserve, St. Regis, W, EDITION, JW Marriott, The Luxury Collection, Marriott Hotels, Westin, Le Méridien, Renaissance Hotels, Sheraton, Delta Hotels by MarriottSM, Marriott Executive Apartments, Marriott Vacation Club, Autograph Collection Hotels, Tribute Portfolio, Design Hotels, Gaylord Hotels, Courtyard, Four Points by Sheraton, SpringHill Suites, Fairfield Inn & Suites, Residence Inn, TownePlace Suites, AC Hotels by Marriott, Aloft, Element, Moxy Hotels and Protea Hotels by Marriott. The company also operates award-winning loyalty programs: Marriott Rewards, which includes The Ritz-Carlton Rewards and Starwood Preferred Guest.

Zacks Rank #2

Average EPS surprise in the last 4 quarters is 9.1%.

Estimated revenue growth in 2017 is 31.1% and in 2018 is 5.1%.

Estimated EPS growth in 2017 is 11.0% and in 2018 is 13.1%.

Hilton Worldwide Holdings Inc. HLT

Hilton Worldwide Holdings owns, leases, manages, develops and franchises hotels, resorts and timeshare properties. Its portfolio of brand names consist of Waldorf Astoria Hotels & Resorts, Conrad Hotels & Resorts, Hilton Hotels & Resorts, DoubleTree by Hilton, Embassy Suites Hotels, Hilton Garden Inn, Hampton Inn, Homewood Suites by Hilton and Home2 Suites by Hilton and timeshare properties under the Hilton Grand Vacations brand. Hilton Worldwide Holdings Inc. is headquartered in McLean, Virginia.

Zacks Rank #2

Average EPS surprise in the last 4 quarters is 3.4%.

Estimated revenue growth in 2017 is 7.0% and in 2018 is 5.1%.

Estimated EPS growth in 2017 is 16.0% and in 2018 is 10.5%.

Choice Hotels International, Inc. CHH

Choice Hotels International is one of the largest hotel franchise companies in the world with hotels, inns, all-suite hotels and resorts open and under development in countries across the globe under the brand names Comfort, Quality, Clarion, Sleep Inn, Rodeway Inn, Econo Lodge and MainStay Suites.

Zacks Rank #2

Average EPS surprise in the last 4 quarters is 19.2%.

Estimated revenue growth in 2017 is -22.1% and in 2018 is 7.0%.

Estimated EPS growth in 2017 is -29.0% and in 2018 is 18.4%.

Intercontinental Hotels Group IHG

Intercontinental Hotels Group offers information and reservations capability on the Internet for InterContinental Hotels & Resorts, Crowne Plaza Hotels & Resorts, Holiday Inn hotels, Holiday Inn Express hotels and Staybridge Suites by Holiday Inn hotels.

Zacks Rank #2

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Expedia, Inc. (EXPE) : Free Stock Analysis Report
The Priceline Group Inc. (PCLN) : Free Stock Analysis Report
TripAdvisor, Inc. (TRIP) : Free Stock Analysis Report
Marriott International (MAR) : Free Stock Analysis Report
Intercontinental Hotels Group (IHG) : Free Stock Analysis Report
Choice Hotels International, Inc. (CHH) : Free Stock Analysis Report
Hilton Worldwide Holdings Inc. (HLT) : Free Stock Analysis Report
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